The Abbott government will seek parliamentary approval to lift the cap on its borrowings to $500 billion.
The existing cap of $300 billion will be reached by December 12, Treasurer Joe Hockey told reporters in Canberra on Tuesday.
On current trends, peak debt will now exceed $400 billion by 2015/16 up from the $370 billion forecast before the September 7 election.
"We need to move quickly to deal with this," Mr Hockey said.
The Australian Office of Financial Management previously advised the government a buffer of $40-60 billion above the peak debt was prudent to allow for unanticipated events.
News that makes sense
Your trusted source for staying up-to-date with the world around you. Get free daily news updates and analysis, straight to your inbox.
Mr Hockey said there needed to be stability and certainty for the financial markets about the government's capacity to finance its operations for the foreseeable future.
"We need not look any further than the recent events in the United States to realise how imperative for stability and certainty is for confidence," he said.
